The Chinese economy resilience supports Asian markets

Despite the trade war and the Covid-19 pandemic, China seems to be building its recovery quite quickly, supporting growth in other Asian stock markets and trading partners. With a steady increase in activity, China is currently supporting major stock indexes of the region, such as the Australian ASX index and the Japanese Nikkei 225.

"Overall, the economy remained in a post-epidemic recovery phase and improved at a faster pace. Supply and demand both expanded in the manufacturing and services sectors" recently declared a senior economist at Caixin Insight Group, Dr. Wang Zhe, about China.

Activity in China's manufacturing sector continued to recover in September 2020, with the official China Manufacturing Purchasing Managers Index (PMI) reaching 51.5 last month, which means that the sector is growing compared to last month, as a PMI reading above 50 represents an expansion compared to the previous period. The Caixin/Markit PMI is also in expansion territory, despite showing a little weakness in September (53 vs. 53.1).

"The Caixin China General Manufacturing PMI came in at 53 in September, dipping from 53.1 the previous month. Before August, the last time the index climbed above 53 was January 2011. That indicates the post-coronavirus manufacturing recovery has stayed strong, managing to even accelerate over the past two months" said Dr. Wang Zhe.

Continued improving numbers of economic activity across the country show China's strength towards economic recovery after the Coronavirus outbreak in Wuhan

According to the IMF, China is "now the world's second largest economy at market exchange rate" and "has been a key driver of global growth in recent years". China also has a great influence on Asian financial markets, possibly being the only major economy to have avoided a recession in 2020, as Chinese GDP should increase 1.6% this year, according to July projections from the World Bank.

"Financial spillovers from China to regional markets are on the rise, in particular in equity and foreign exchange markets, and are stronger for economies with greater trade linkages with China" explains an IMF report.

With China's economic data boosts, especially thanks to recovering demand for Chinese-made goods and local stimulus measures, regional stock exchanges should benefit from optimistic investor sentiment. That being said, China's recovery faces some challenges - investors are pricing in an economy that remains open, and there are some risks about the economy shutting back down.

With Covid-19 infections on the rise and the American election, investors are thus cautious. Uncertainty about how these events will impact the global economy this year and the following year are also clouding market sentiment.

Regardless of who wins the election, tariffs on Chinese and US goods and trade policies between the two countries are likely to be back on the negotiating table. This could lead to another round of new and unpredictable trade restrictions, taxes, and policies targeting China. If other developed countries were to join the United States in its move, the impact on China's growth will be far worse.